JPMorgan Sees Limited Extra Demand for Romania Debt on Index

Extra demand for Romanian debt
stemming from inclusion in an emerging-market bond index will be
limited as investors have already boosted their holdings by $3.5
billion through January, JPMorgan & Chase & Co. (JPM) said.

The U.S. bank, which will incorporate three Romanian leu-
denominated fixed-income securities in its GBI-EM index over
three months starting March 1, had estimated total inflows of $2
billion amid the inclusion, according to a research note sent to
clients today.

“Investors have already increased their exposure to
Romanian bonds and we expect extra demand from index inclusion
to be limited,” JPMorgan said in the note. “The potential
future inclusion of additional Romanian bonds in the index,
which depends on liquidity, may add to further demand.”

Leu-denominated bonds and the currency have rallied since
January after JPMorgan said three of the country’s local notes
are eligible for index inclusion. Eleven Romanian notes are also
eligible for entry to a Barclays Plc (BARC) emerging-market index,
according to e-mailed comments from Societe Generale SA. (GLE)

The leu strengthened 0.3 percent to 3.3428 per euro by 7:53
p.m. in Bucharest. It has gained 2.1 percent against Europe’s
common currency this year, the seventh-best performance among
more than 20 emerging-market currencies tracked by Bloomberg.
The yield on Romania’s January 2016 bonds slid to 5.73 percent
at an auction on Feb. 14, compared with a rate of 6.03 percent
at a similar-maturity sale on Jan. 10.

Foreign Holders

Foreign investors’ holding of Romanian debt rose to more
than 20 percent in February from 5 percent in November,
according to JPMorgan.

The increased interest from international investors helped
the Finance Ministry raise a record 11.4 billion lei ($3.4
billion) of local debt in January in addition to 503 million
euros ($655 million) of bonds also sold domestically. It also
raised 4.03 billion lei last month, more than the 3.7 billion
lei planned.

Romania’s October 2015, January 2016 and July 2017 leu
bonds are eligible for the JPMorgan index, phased in over a
three-month period concluding on May 1, JPMorgan said in the
note. Their final expected weight in the GBI-EM Global
Diversified index is 0.87 percent, it said.

That compares with the country’s current weight of 0.29
percent, Patrick Burton, a spokesman for the bank, said in an e-
mailed response to questions from Bloomberg News.

JPMorgan raised its estimate for Romania’s economic growth
to 1.5 percent this year from 0.8 percent, adding that it sees
risks from the “uncertainty around a new deal with the
International Monetary Fund.”